The US Dollar reversed lower after touching 109.29. Though the USD retraced to 106.62, exports from the US to other countries have become expensive.
The 200-DMA is at 99.10, and the Dollar Index is safe as long as it trades above this level. The surging US Dollar Index is affecting US exports.
Higher US Dollar Price Index makes Exports Expensive
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The US Dollar index has risen 12% this year. It is trading at a 21-year high. The strong USD has made foreign goods prices less expensive, but it is not doing much for the economy. US products have become expensive in other countries. The strong Dollar has reduced exports while increasing imports. Trade deficit has increased in the US.
The US Dollar is gaining value against other major currencies. The USD is near-parity with the Euro currency, and the Euro trades at $1.02 in the forex market. The US dollar is the reserve currency in the international market. Higher Dollar value has made exports from the US to the Eurozone costly, impacting sales.
Pandemic-Induced Recession in the US
The recession in the US is pandemic-induced. High inflation and rising unemployment are the chief concerns of policymakers. Earlier, the Fed stated that inflation was transitory. But the Fed acknowledges that inflation is its chief concern. President Joe Biden said that inflation is the top domestic priority addressed today. Inflation over the last 12 months is at 9.1%, at a 40-year high rate. The Fed is expected to hike rates at the FOMC meeting on July 27.
The US Final Manufacturing PMI shows improvement from 52.4 to 52.7, as manufacturing conditions improved with new orders, higher inventories, and rising production activities. Final services PMI jumped from 51.6 to 52.7, with industry expansion and growth in the services sector in the United States. But capacity constraints and price pressures affect the service providers.
Unemployment claims from 231k to 235k are a lagging indicator of a slowing job sector. Non-farm employment change has come down from 384k to 372 k. The unemployment rate is at 3.6%.
US trade balance shows a deficit of $85.5 billion while it was a deficit of $86.7 billion earlier. Moderate inflation is good for the economy. But high inflation will raise the goods and services of the country. Exports from the US have gone down, while imports have increased, causing a deficit in the trade balance, affecting trade.
Core retail sales have risen from 0.6% to 1%, with automobile sales rising higher as spending habits improve in the United Kingdom. Retail sales climbed higher than forecast in June. Consumer spending has been good despite inflation and economic disturbances.
Major Currency Pairs in the Forex Market
The high-priced food products and crude oil haunt the British Pound. Inflation is higher at 9.4%, above the expected rate of 9.3%. However, analysts expect core CPI data to reverse in the coming months.
There are two contestants in the race for the next UK Prime Minister. They are Foreign Minister Liz Truss and ex-Chancellor Rishi Sunak.
The GBP/USD is at 1.2050 as the Dollar weakened.
The EUR/USD is at 1.02 levels on July 22, 2022. It touched a low at 0.9952 on July 14 but retraced to move above the 1.00 mark.
The Euro to US Dollar recovered after the Ukraine-Russia deal. The Euro region is the major importer of crude oil and food grains from Russia and Ukraine. The war had brought a severe supply crisis to the Euro area. The food crisis had resulted in soaring inflation in the country.
Investors expect the ECB rate decision in the July meeting to impact the Euro trend in the forex market. The EUR/USD is at a 2-decade high, with a spike in energy prices. The Euro statistical data states that high energy prices and expensive commodities are the chief cause of rising annual inflation, which is at 8.6% in June.
The US Dollar to Canadian Dollar currency exchange surged to multi-month highs to 1.3225. The surging inflation caused the Canadian Dollar to weaken. However, the Canadian Dollar recovered to 1.2914 after the pullback in the US Dollar. The CPI is at 8.1% in June, rising from 7.7% in May. Bank of Canada increased rates by 100 basis points in the July meeting to tackle inflation.
The Dollar to Indian Rupees surged to life highs above 80 but corrected to close at 79.80 for the week ended July 22, 2022.
Crude Oil Prices
Hike in crude oil prices has contributed to rising inflation. High crude price has caused a surge in commodity prices, increasing inflation.
The Russia-Ukraine war has resulted in high gas prices. After Russia reduced its natural gas supply to other countries, gas prices skyrocketed. Crude oil inventories have jumped from -2.3 million to 8.2 million.